Regulation, policy must keep pace with mobility innovation

To maximize the rapid fire implementation of mobility innovation, regulatory policy must keep pace, according to David Sampson, president and CEO of the Property Casualty Insurers Association of America. Sampson was a panelist in a session called The Mobility State: Perspectives on Policy and Regulation at the Mackinac Policy Conference, and we caught up with him to talk about the future of insurance and regulation as connected and autonomous vehicles begin to roll off the production line.

Here’s what he had to share.

DRIVEN: insurance is obviously a super important issue as we move into the mobility age, where everything changes. This is a huge disruption to the insurance industry as well. We talk about the jobs that are going to go away, and we say we may not need truck drivers anymore, and we won't need pizza delivery people anymore. Are people nervous about insurance going away altogether?

DAVID SAMPSON: I don't think anyone thinks that insurance is going to go away, because risk is still going to be there, even in a mobility world with highly autonomous vehicles. There may be some shift between personal coverage versus commercial coverage, depending on if there's mobility on demand, but anywhere there is risk, there is going to be a need for insurance. There's no one company that can bear all of the risk that's involved in mobility. And so insurance products will change. The balance that companies sell of commercial versus personal lines may change somewhat, but there's always going to be a need for insurance as long as things go wrong.

I would just point out that there's a real symbiotic connection between Michigan and mobility in the insurance industry, because for over 100 years, as cars first began to appear on roads and there was the first accident, the auto insurance industry began to emerge and grow from that. You think of the very early AAA automobile clubs that very early on began offering insurance products, and so the auto insurance industry has innovated and changed for over a century as products have changed, and I think that symbiotic relationship will continue into the future.

You have a vast amount of experience not only in insurance, but also in government, as you served under President George W. Bush. You were in a panel this afternoon here at the Mackinac Policy Conference, and you talked about the opportunity for regulatory triage.

Well first of all, I think for this mobility disruption to succeed, government and regulators are going to have to move at the speed of innovation, and the auto industry and the insurance industry are both highly regulated industries. The automotive industry, primarily through federal safety standards that the insurance industry has been a proponent of for decades, founded and created the Insurance Institute for Highway Safety, that really invented and popularized the crash test dummies and give the crash ratings for all the automobiles. We are big proponents of safety, an automotive companies are highly regulated, but the insurance industry is also highly regulated at the state level.

So with the pace of change, and the depth of change and disruption that's going on, the point I was making was that regulators are going to have to move at the speed of innovation or all of this innovation is going to be stillborn. Other parts of the globe will move faster than we are. And we don't want to give up on the safety gains that have been made over decades.

There are some things that I think the regulators are going to have to provide a lot of flexibility on for innovation to be tried, first in test beds and confined areas, but there are some things like crash safety standards that we won't want to compromise on. We'll still want to maintain very robust crash survivability and crash safety standards. That's what I was talking about when I was talking about regulatory triage.

Sitting right next to you on the panel was our Senator Gary Peters, who has introduced the AV START Act into legislation, and that is moving along ... he was talking about the snail's pace, really. Are you a proponent of this particular act?

We are. Yes, we're strong supporters of that. We prefer the Senate version over the House version that I think was rushed through a bit too quickly without enough due deliberation. Senator Peters' AV START Act, really addresses some of the issues that I was just talking about, in terms of some regulatory flexibility on some things, while maintaining very strict and strong safety standards on other parts of the vehicle.

The other thing that we really like about the AV START Act, is it calls for the creation of a federal advisory committee on autonomous vehicles, which will bring together a cross-section of parties who have equities in this issue to advise the federal government Department of Transportation and NHTSA on developing these standards. You'll have the OEMs on that advisory committee, you would have the insurance industry sitting on that committee, around the table with the OEMs and the software developers and the safety advocates, all in a dialogue to advise the federal government on how these standards should be developed.

You also talked about the sheer numbers of people who are dying in accidents every single day, and even partial autonomy connected vehicles have the ability to decrease the numbers and make people safer in the long run. So, can you talk a little bit about the moral implications?

Sure. So there are two disruptions that are going on in the auto insurance industry, the auto industry and the auto insurance industry. As I said, they're symbiotic. The first disruption is the current disruption that's going on. So, we have seen a reversal of a 50 year trend in reduction of auto accident fatalities. So really since 2014, we have seen a sharp spike in the frequency of auto accidents and the severity of auto accidents. That's counterintuitive to most people, because cars are safer than ever before, they have crash avoidance systems within them, survivability of a crash is greater because of all of these advances and the absorption and the cages around the passenger compartment, but what's happening is that human behavior is outstripping the safety features.

So even as cars are safer, people are getting in more accidents than ever before, and it's a combination of factors. It's not just one silver bullet, it's certainly more congested roadways, it's aging roadways, the cities where you have higher congestion are seeing significant spikes in auto accidents, and then on top of that you have an aging demographic of Baby Boomers who are getting older. But then some of the really new dimensions of this is distracted driving, and this is really serious behavior. It truly is an epidemic.

And then, on top of distracted driving, you have drugged driving and impaired driving. So when you think about the generational shift that is, and it took place over a generation, but the change in cultural attitude about driving while drinking, and that's taboo today.

When I interact with millennials, I have children who are millennials, I interact with their friends, there is a completely different mindset than when I was that age. If they're going out on the town and they're going to a party or whatever, they really take the designated driver seriously, or as a benefit of this mobility age, they really use the on demand services that are out there and plan for that from the very beginning. So you look at all the progress we've made on reducing drunk driving, and we're losing those gains because of distracted driving and drug impaired driving. And if you look at the states that have legalized either medical or recreational marijuana compared to the states surrounding them, thre is a highly significant increase in auto accidents in the states that have legalized marijuana as compared to control states that haven't.

Interesting.

And we as an industry don't take a position on that social issue, other than to say, public policy makers really need to factor in the safety implications of this, and while standards have been developed over the course of a number of years for drunken driving and those blood tests, those same safety standards don't exist for THC. There's not roadside tests for that. And so we're actively pushing for the development of those standards as a part of the transportation department's funding bill in D.C.
Then on top of the marijuana impact, you also have the drug impaired driving. And so you have not only prescription drugs, but the opioid epidemic adds to all of this.

And so the current disruption is a significant spike in auto accident frequency and severity. It costs more to repair the modern vehicles with all the safety technology because of all the technology that's embedded in bumpers and sensors and mirrors and cameras, but it also costs a lot to repair people. And the medical cost for people who are injured in auto accidents, not only exceeds the consumer inflation index, but it even significantly exceeds the medical inflation index.

So that's one disruption. And then you look the longer term disruption, which is the advent of highly autonomous vehicles, which companies are planning for. That has the potential, we believe, to significantly reduce auto accident frequency, and improve congestion issues. That's longer term on the horizon, and before you get to a fully autonomous vehicle fleet, there's going to be this period where you've got…

A big mix.

A big mix of vehicles on the road. And you know, I find between my vehicles that I use, the vehicle I use in D.C., which is a modern vehicle with all the safety features, and I go back to the ranch, and I get in a 1994 Ford F350 Dually, and all of a sudden, I find myself relying on safety technology that didn't exist then. And so there's this mind shift as there's going to be a mix in the fleet that I think we're probably going to see a continued increase in auto accident frequency before we get the full benefits of highly autonomous vehicles being on the road.

It will get worse before it gets better.

I suspect it's going to get worse before it gets better.

Are there any other points that you wanted to make during the panel discussion that you were not able to make?

I did mention briefly on the panel that we're really going through a paradigm shift in how auto insurance is underwritten. Historically while vehicle characteristics have always been a part of the underwriting process for an insurance policy, you look at the VIN numbers and that tells you the equipment that's on there. Historically, insurers have underwritten the driver, and the driver's risk behaviors. So now we're shifting, we're going to be shifting to underwriting technology and software, and that's going to be a fundamental paradigm shift.

Which leads to my second point: insurers are going to need access to onboard data if we're going to be able to underwrite those products in a competitive way, that's a risk-based way. And certainly the OEMs have a lot of intellectual property, we understand that, that intellectual property needs to be protected, but you think about how insurers currently handle the liability that occurs whenever there's an accident. You interview the drivers, and that's how you get to the resolution of the claim.

If the drivers are not driving, that means we have to have access to the onboard data, and so that's a whole series of issues that we are in active discussions with the OEMs on, and I think they understand that. We understand their concerns to protect intellectual property. I think there's an awareness on their part that there's going to be a need for access to certain data. And then there are all the cyber security issues that are related to the software and the technology and the connected vehicles. And so there's going to be a lot of change coming very rapidly into the fleet.
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